Danny Alexander, chief secretary to the Treasury, committed the cash with the aim of encouraging early adopters to take up the energy efficiency scheme and to give confidence to business.

The green deal plan was revealed in detail by energy and climate change secretary Chris Huhne on Wednesday for consultation. From October 2012, it will enable homeowners to take a loan to install insulation or other energy-saving measures. Under the so-called "golden rule", the energy bill savings from the measures will be larger than the loan repayments.

The green deal proposals allow for up to £150 to given as a cashback offer to homeowners, but that is added to the loan.

The £200m is new cash funding from the Treasury and could be worth hundreds of pounds to people who to take up the deal in its first year. How the incentive is delivered is yet to be decided, but it could be in the form of cashback offers, discounts on council tax or cuts to stamp duty when a home is sold. It could also follow the highly successful model of the now-closed boiler scrappage scheme.

"The scheme will involve time-limited offers to help the early uptake, and give confidence to industry that the government is fully behind the green deal scheme," a Decc official told the Guardian.

Energy and climate change secretary, Chris Huhne, said: "We want the green deal to be a game changer for British consumers who've been buffeted by global energy prices. The earlier you green deal your home, the quicker you'll benefit from a warmer and cosier property as well as protect yourself from rocketing prices."

Consumer group Which? said the most important thing was getting the detail of the green deal right for homeowners. Richard Lloyd, executive director at Which?, said: "It's crucial that the Government gets the fundamentals of the Green Deal right. If it's not good value for consumers overall, short term incentives will not be enough to guarantee that this scheme will be a success."

The green deal is a cornerstone of the government's drive to deliver a secure energy system for the UK, while also cutting the carbon emissions that drive climate change. The UK has some of the least energy-efficient homes in Europe and the deal aims to enable people to keep their homes warm with less energy.

But other concerns have been raised that might affect the take-up of the scheme, including the interest rate at which the loans are charged. If those rate are at commercial levels, observers say, only limited measures will be able to be funded while keeping to the golden rule. A Green Deal finance company has been proposed to pool loans and cut the interest rate, but it has no funding in place at present.